Direct vs Regular Mutual Funds

A Direct Plan requires investors to invest directly with the AMC, bypassing intermediaries, which eliminates distribution fees and results in lower expense ratios. In contrast, a Regular Plan involves investing through a distributor, broker, or banker, who earns a commission from the AMC, making it slightly more expensive for the investor.
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Difference between Direct and Regular Mutual Funds
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4 mins read
23- March-2025

Mutual funds are popular investment options that offer a simple and effective way to grow your wealth. When it comes to investing in mutual funds, you often have two choices: direct mutual funds and regular mutual funds. Understanding the differences between these two options is crucial for making informed investment decisions. In this article, we will explore the distinctions between direct and regular mutual funds, so you can choose the right path to meet your financial goals.

There are two versions of mutual funds: direct mutual funds and regular mutual funds.

One of the major differences between these types of mutual funds lies in the expenses incurred. Direct mutual funds are generally more beneficial for investors because they have lower expense ratios compared to investments via regular mutual funds. This is due to the absence of distributor commissions in direct MFs, resulting in more of your money being invested in the assets under management (AUM).

Direct and regular mutual funds differ primarily in terms of expense ratios and the presence of intermediaries. While direct plans offer lower costs, regular plans provide advisory support. Choosing the right plan depends on your investment strategy and knowledge. Compare Mutual Fund Options Now!

What is a direct mutual fund?

Direct plans are bought from the AMC and no intermediary is involved. Direct mutual fund plans are designed for investors who want to invest in mutual funds without involving intermediaries like distributors or brokers. In a direct plan, investors directly buy mutual fund units from the Asset Management Company (AMC). This results in certain advantages, such as lower expenses and comparatively higher returns than regular plans. Direct plans can be bought either directly with the AMC or online through digital platforms.

There are two ways to invest in direct plans:

  1. You can invest in direct plans online by visiting the AMC's website or by going to the AMC or the registrar’s office in your city.

  2. You can also invest in direct plans through SEBI Registered Investment Advisors (RIAs); RIAs, however, charge a fee to their clients for their advisory services.

Since mutual fund distributors are not involved in direct plan investments, these plans typically have lower expense ratios and can yield higher returns compared to regular plans.

What is a regular mutual fund?

Regular plans are bought through mutual fund distributors. Regular mutual fund plans are the more traditional approach. In these plans, intermediaries like financial advisors or distributors facilitate your investment in mutual funds. They provide assistance, information, and services, but these benefits come at a cost, usually in the form of higher expense ratios because brokerage fees or commissions for the broker are also involved.

Mutual fund distributors provide services like advising investors on which mutual scheme to invest in, submitting investor’s Know Your Client (KYC) documents to the Registrars and Transfer Agents (RTAs) or AMCs, helping investors with the investment process (e.g., submitting application forms and cheques to the RTAs/AMCs), and offering ongoing services such as generating account statements and processing redemption requests.

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Frequently asked questions

How will I know if I have invested in Direct or Regular Plan?

You can check your mutual fund statement or login to your fund's online portal. The type of plan (Direct or Regular) will be clearly indicated. Alternatively, contact your mutual fund company or advisor for confirmation.

Is it good to switch from regular to direct plan?

Yes, it can be beneficial to switch from a regular to a direct plan, especially if you are comfortable managing your investments independently and wish to reduce costs.

Why to switch to direct mutual fund?

Switching to a direct mutual fund can save on intermediary commissions, resulting in a lower expense ratio and potentially higher returns. This approach is ideal for investors who prefer greater control over their investment decisions.

Which is better, regular or direct mutual fund?

The lower expense ratios of Direct Mutual Funds, which eliminate broker commissions, can translate into higher returns for investors over the long term.

What are the disadvantages of direct mutual funds?

A key drawback of direct mutual funds is the requirement for investors to possess market knowledge and manage their investments independently, which can be daunting for beginners or those with limited time and expertise.

Is it good to switch mutual funds from regular to direct?

When you switch to a direct plan, you can potentially save money on fees and improve your investment returns. It's important to note that regular plans may have exit loads, so be sure to carefully review any associated fees before making the switch.

Why are regular mutual funds better?

Regular plans might be better if you are a beginner who needs help with investment decisions. They offer guidance from an advisor, but this comes at the cost of potentially lower returns.

Which SIP is best - regular or direct?

A Direct SIP is generally better due to lower costs. This allows you to potentially earn higher returns over time through a Systematic Investment Plan (SIP).

Why is direct plan NAV higher?

Direct plans have a lower expense ratio (fees) compared to regular plans. Since the NAV (Net Asset Value) reflects the value of the fund's holdings minus its expenses, the lower fees in direct plans lead to a slightly higher NAV.

How do you convert regular MF to direct?

The process to switch from a regular to a direct plan for the same mutual fund scheme can vary depending on the fund house. Generally, you can initiate the switch online through your investment platform or by contacting the fund house directly.

What’s the difference between the total expense ratio of direct and regular plans?

Direct plans have a lower expense ratio because they do not involve commissions paid to distributors. Regular plans have a slightly higher expense ratio to cover those fees.

How does the expense ratio impact the returns of direct and regular plans?

A lower expense ratio in direct plans translates to potentially higher returns compared to regular plans. Over time, even a small difference in expense ratio can significantly impact your investment growth.

How do I change the SIP from regular to direct?

Contact your investment platform or AMC (Asset Management Company). They can guide you through the process of switching your SIP (Systematic Investment Plan) from regular to direct. This usually involves filling out a form and may take a few business days to complete.

Is there a penalty for switching mutual funds?

There's typically no penalty for simply switching between mutual funds. However, exit loads might apply if you redeem your units within a specific lock-in period (usually short-term). Check your fund's details to confirm any exit load fees.

Who should invest in direct mutual funds?

Investors who have the knowledge, confidence, and time to manage their investments independently should consider direct mutual funds. These investors are typically more experienced, comfortable making their own decisions without financial advisors, and seek to minimise costs to maximise returns.

Are direct mutual funds taxable?

Yes, direct mutual funds are taxable. Capital gains from these funds are subject to taxes based on the holding period and the type of fund, with short-term and long-term capital gains attracting different tax rates.

Why Direct plan NAV is higher than regular plan?

Direct plan NAV is higher than regular plan NAV because direct plans do not incur distribution and commission fees paid to intermediaries. This cost saving results in higher returns, which accumulates over time, reflecting in a higher Net Asset Value (NAV).

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Bajaj Finance Limited (“BFL”) is an NBFC offering loans, deposits and third-party wealth management products.

The information contained in this article is for general informational purposes only and does not constitute any financial advice. The content herein has been prepared by BFL on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, BFL cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. 

This information should not be relied upon as the sole basis for any investment decisions. Hence, User is advised to independently exercise diligence by verifying complete information, including by consulting independent financial experts, if any, and the investor shall be the sole owner of the decision taken, if any, about suitability of the same.

Disclaimer:

Bajaj Finance Limited ("BFL") is registered with the Association of Mutual Funds in India ("AMFI") as a distributor of third party Mutual Funds (shortly referred as 'Mutual Funds) with ARN No. 90319

BFL does NOT:

(i) provide investment advisory services in any manner or form:

(ii) carry customized/personalized suitability assessment:

(iii) carry independent research or analysis, including on any Mutual Fund schemes or other investments; and provide any guarantee of return on investment.

In addition to displaying the Mutual fund products of Asset Management Companies, some general information is sourced from third parties, is also displayed on As-is basis, which should NOT be construed as any solicitation or attempt to effect transactions in securities or the rendering any investment advice. Mutual Funds are subject to market risks, including loss of principal amount and Investor should read all Scheme/Offer related documents carefully. The NAV of units issued under the Schemes of mutual funds can go up or down depending on the factors and forces affecting capital markets and may also be affected by changes in the general level of interest rates. The NAV of the units issued under the scheme may be affected, inter-alia by changes in the interest rates, trading volumes, settlement periods, transfer procedures and performance of individual securities forming part of the Mutual Fund. The NAV will inter-alia be exposed to Price/Interest Rate Risk and Credit Risk. Past performance of any scheme of the Mutual fund do not indicate the future performance of the Schemes of the Mutual Fund. BFL shall not be responsible or liable for any loss or shortfall incurred by the investors. There may be other/better alternatives to the investment avenues displayed by BFL. Hence, the final investment decision shall at all times exclusively remain with the investor alone and BFL shall not be liable or responsible for any consequences thereof.

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Investors are advised before investing to evaluate a scheme not only on the basis of the Product labeling (including the Riskometer) but also on other quantitative and qualitative factors such as performance, portfolio, fund managers, asset manager, etc, and shall also consult their Professional advisors, if they are unsure about the suitability of the scheme before investing.


Disclosure: Bajaj Finance Limited (BFL) is a distributor of Mutual Funds with ARN - 90319 and distributes mutual funds of Bajaj Finserv Asset Management Limited (BFSAMC). BFL receives commission towards distribution of mutual fund products. BFSAMC is a group company of BFL, carrying business on arm’s length basis without any conflict of interest and in accordance with the prevailing law / regulation.